Will investing right now hurt your chances of an early retirement? | Business news

If you follow the news, it’s pretty hard to ignore all the talk of an impending recession. And even if you somehow managed to ignore it, record inflation and declining investment portfolios must have gotten your attention. This can be stressful for people of all ages, and many worry about how it will affect their ability to retire when they want to.

No one likes to lose money, so wanting to get your money out of the market right now is a completely natural instinct. But this could be a big mistake.

Focus on the big picture

It is important not to make rash decisions retirement savings now, because they can have far-reaching consequences. Selling investments that have fallen in price to prevent them from falling further can turn a temporary loss into a permanent one. Whereas if you kept your investments, they would recover over time.

If you take the more radical step of pulling your money out of your retirement account entirely to keep it in cash, you could face expensive tax penalties today. You also make it much more difficult to save for retirement in the future.

For most people, it’s almost impossible to save enough for retirement on their own. They need investment returns to help them, and they can only get them through investing. Your earlier contributions actually matter the most because they typically yield the most returns over time. If you start later, you will have to rely more on your personal input.

The stock market has its ups and downs, but in the long run it usually does pretty well. You might think that investing more when stock prices are down is a bad thing, but it can actually be a smart move. You will get more shares or index fund than in good times and higher prices, and when the market recovers, these stocks can bring you significant returns.

But don’t ignore the obvious problems

For most people, it is best to do in a recession is to stay on course. Trust that you’ve made a smart investment and don’t check your portfolio too often if you think it will tempt you to make an emotional decision. But there are situations when it makes sense to carefully examine your portfolio.

For example, if all your money is in a handful of stocks, this is a serious concern. If one of them does poorly, it will have a much bigger impact on your portfolio than if you had hundreds of stocks and some of them went down in price. At a minimum, spread your money equally between 25 different stocks.

You can also make some changes if all your investments are in one industry, e.g technology companies. If that industry doesn’t perform, your portfolio can suffer badly, even if you own dozens of different stocks in the industry.

Also think about your risk tolerance. If you have all your money in stocks and you’re on the verge of retirement, you’re right to be worried. A general rule of thumb for managing your exposure to stocks is to keep 110% of your invested money minus your age in stocks. So, if you are 40 years old, you should invest 70% in stocks and the rest in bonds. If you’re 50, you’ll have 60% of the stock, and so on.

But once you have a portfolio you’re happy with, step back and don’t worry too much about the daily ups and downs. Unless you’re planning to retire soon, this shouldn’t affect you in the long run. Recession and periods of economic uncertainty have happened many times in the past. People have still managed to successfully invest through them and retire comfortably, and you can too.

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